In a joint letter to federal government agencies, mortgage industry trade groups present proposals and requests to address issues arising from the national emergency posed by COVID-19. The trade groups propose universal consumer support for existing homeowners, address challenges with assisting new mortgage loan applicants, and request liquidity assistance for non-bank mortgage servicers.
The trade groups are the American Bankers Association, Consumer Data Industry Association, Housing Policy Council, Mortgage Bankers Association, Structured Finance Association, The National Mortgage Servicing Association, and US Mortgage Insurers. The letter was sent to the National Economic Council-White House, U.S. Department of Treasury (Treasury), Federal Reserve Board (Federal Reserve), Consumer Financial Protection Bureau (CFPB), Federal Housing Financial Agency and U.S. Department of Housing and Urban Development.
Universal Consumer Support
The trade groups propose that a universal program for assisting existing homeowners be implemented so that consumers in similar situations have the same relief options. The relief would provide initially for payment forbearance and then a loan modification. An attachment to the letter outlines the terms of the consumer relief, and requests related regulatory relief. Specifically, the trade groups request that the “CFPB should [i]ssue [an] emergency/interim final rule to clarify that servicers will not be liable for regulatory violations if they have made good faith efforts to comply with servicing timelines during periods of declared national emergencies, including but not limited to Sections 1024.34, 1024.35,1024.39,1024.41 of RESPA and ECOA appraisal requirements for loan modifications.” The cited sections are the provisions of Regulation X under RESPA that address escrow accounts, error resolution, early intervention with delinquent borrowers, and loss mitigation.
With regard to new mortgage loan applicants, the trade groups note the need for relief and solutions with regard to appraisal requirements, verification of employment requirements, the closing of the loan, the obtaining of title searches, and the recording of deeds and security instruments.
Non-Bank Mortgage Servicers
The trade groups state that with regard to liquidity concerns, non-bank mortgage servicers are the focus, as their “bank members are expressing increasing confidence that they will have sufficient capital reserves and liquidity resources necessary to handle the current stressed environment.”
The trade groups explain that when borrowers do not make their mortgage payments, the servicer still needs to pay principal and interest to investors, and pay real estate taxes, homeowners insurance, and mortgage insurance. With all of the borrowers who are expected to need mortgage payment forbearance relief, the resulting need for servicers to advance funds will present a liquidity issue for non-bank mortgage servicers. The trade groups request a backstop liquidity source for these servicers. The trade groups estimate that if 25 percent of borrowers in the country receive forbearance for three months, servicers will have to cover payments of roughly $36 billion, and that the amount would exceed $100 billion if such borrowers receive forbearance for nine months.
The trade groups note two existing financing vehicles that could be used. One is Ginnie Mae’s Pass-Through Assistance authority, which enables the agency to make principal and interest advances to bondholders on behalf of a servicer for a period of time. Another is the Federal Reserve’s lending authority under section 13(3) of the Federal Reserve Act, which the groups note has already been deployed in the COVID-19 crisis for other emergency funding needs. The trade groups also indicate the potential for other options, such as congressional authorization for liquidity programs, or for Treasury to directly finance or guarantee servicer advances as requested by servicers.
The trade groups note that the information in the letter is also being provided to other federal departments and agencies, Congress and Fannie Mae and Freddie Mac.Copyright © 2020 by Ballard Spahr LLP.
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